Medicaid-Focused Health
Plans: A Community Health Conspiracy
June 2003

This is the html
version of the file
http://www.ahcahp.org/publications/hurley03.pdf.
------------------------------------------------------------------------------
Page 1
Medicaid-Focused Health Plans: A Community Health Conspiracy June
2003Robert
E. Hurley, Ph.D. Department of Health Administration Virginia
Commonwealth
University Richmond, VA rhurley@hsc.vcu.edu 804-828-1891 Working Paper
prepared for the Association for Health Center Affiliated Health Plans
in conjunction with AHCAHP Conference in Washington DC, May 29, 2003.
With
funding from the Center for Health Care Strategies
--------------------------------------------------------------------------------
Page 2
Abstract Several changes occurring in the general managed care
marketplace
and in the Medicaid contracting environment are expanding the important
role played by Medicaid-focused prepaid health plans. These plans
embody
both the features and the promise that the health maintenance
organization
(HMO) once offered as a counter-cultural movement in the U.S. health
care
system. The transformations underway provide an opportunity to assess
why
the HMO remains a particularly valuable financing and delivery system
in
a resource constrained public program. The mutual dependence between
these
plans and Medicaid agencies underscores their need to maintain a sense
of partnership during a period of significant fiscal challenge.
2
--------------------------------------------------------------------------------
Page 3
Medicaid Focused HMOs: A Community Health Conspiracy David Lawrence,
the physician-CEO of Kaiser Permanente, once remarked in the late 1990s
on how ironic it was that 25 years earlier health maintenance
organizations
(HMO) had been portrayed as a “communist conspiracy” and now they had
become
a “capitalist conspiracy.” Such a pointed comment underscores the
degree
to which the HMO has been perceived by many as a sinister threat for
more
than two generations (1). Why there has been such paranoia about this
model
and why its perpetrators have been so vilified, even as they have
transitioned
from members of a near religious movement to segments of a massive
industry,
begs for better understanding and appreciation. The answer appears to
lie
in the fact that prepaid, comprehensive benefit-based, organized
delivery
systems are indeed a frontal attack on the passive, reactive sickness
care
system that prevails in the U.S. They represent a counter-cultural
affront
to the existing establishment in health care. Given this position, it
seems
appropriate that the HMO would find a reasonably hospitable haven in
one
of the sectors long relegated to the backwaters of the U.S. health care
system, Medicaid. Within the Medicaid program, those HMOs that have
made
a major commitment to this population have been able to devise and
maintain
a far more disciplined and responsive product than could ever be
acquired
in a fragmented, fee-for-service environment. It can be contended that
they have perpetrated what one might call a “community health
conspiracy.”
3
--------------------------------------------------------------------------------
Page 4
Despite striking success in terms of enrollment growth and service
delivery, Medicaid-focused plans are facing a new set of challenges in
the health insurance and public finance realms that put their progress
in jeopardy. The challenges reflect the high aspirations set by and for
a counter-cultural movement and the vulnerability associated with
serving
a needy and often neglected membership. These challenges are initially
described, particularly as they are revealed in the private health
benefits
sector, and in the current budgetary crisis found in the states. Next,
the features of the HMO that illustrate its suitability and durability
are detailed. Finally, a discussion of the tactical responses needed to
survive near term threats is presented. The Cresting of the Managed
Care
Wave A number of important trends in the managed care realm signal that
the erstwhile purchaser revolution is fizzling and with it the period
of
cost control buyers enjoyed in the mid and late 1990s (2). The reasons
for the decline are many and varied and mostly beyond the scope of this
discussion, but the consequences of the decline are powerful and
pertinent.
Most notably the decline reveals a significant retreat and retrenchment
in the degree to which private purchasers can promise and deliver
comprehensive
benefits at a modest cost to their employees. Health plans serving
private
sector employers have responded by stepping back from their aggressive
efforts to manage cost and care that brought down on them public
opprobrium
and disdain. It is difficult to criticize plans that have concluded
that
their survival is more dependent on satisfying disgruntled providers
and
consumers than accommodating equivocating purchasers. 4
--------------------------------------------------------------------------------
Page 5
The change in positioning by health plans is evident in the
configuration
of product offerings taken up by private employers (Figure 1). The HMO
(and its closely associated point of service (POS) adaptation) saw its
maximum enrollment peak in 1999. Since that time the principal growth
has
been in the more loosely managed product, the preferred provider
organization
(PPO). By 2002 the PPO emerged as the modal private insurance product
in
the U.S. with 52% of all covered employees (3). This product has become
essentially the platform of choice, both in the sense that it is the
most
often selected product and its most notable feature, its capacity to
promote
consumer choice better than more restrictive network products like the
HMO (4). It also has a more flexible structure that is well-suited to
employer
preferences for self-funding, fewer covered benefits, and increased
consumer
cost sharing, all important accompanying developments in the private
health
benefits arena. 7348372923151498751 12 72 52 93 13 53 43 84 14 85 271
51
41 92 02 22 52 22 21 816192327273030282923260 %2 0 %4 0 %6 0 %8 0 %1 0
0 %1 9 8 81 9 9 41 9 9 61 9 9 82 0 0 02 0 0 2IndemnityPPOPOSHMOPercent
of all covered employees.National employee enrollment by type of
plan*Source:
J. Gabel, et al Employer Health Benefits. 2002 Annual Survey. KFF/HRET,
2002Figure 15
--------------------------------------------------------------------------------
Page 6
Paralleling the shift to more minimally managed care has been a
dramatic
upturn in health care premiums in recent years (Figure 2), which has
wiped
away the gains of the previous decade. The return to mid-teen rates of
increases is a daunting and disappointing development in its own right,
but for private purchasers who once hitched their wagons to the managed
care star it is deeply disturbing. The trend has led many purchasers to
question whether health plans have any “tools remaining in their
toolbox”(5).
Most notably, plans seem to have lost the ability to curb provider
demands
for increased payments to offset rising input costs and counteract
declines
in public sector payments. Purchasers have come to see many plans as
merely
messengers, simply passing along provider calls for increased
compensation
and further confirming doubts Increases in Health Insurance Premiums
Compared
to Other Indicators, 1988-2002024681 01 21 41 61 82 01 9888 99 09 19 29
39 49 49 69 79 89 9012 002HI P remiumsWorkers EarningsOverall
Inflation18%12.7%.8%Source:
J. Gabel, et al Employer Health Benefits. 2002 Annual Survey. KFF,
2002Figure
26
--------------------------------------------------------------------------------
Page 7
that the pains of tightly managed care could ever justify the presumed
gains. Loss of faith in tightly managed care has led purchasers to
conclude
that perhaps minimalist models like PPOs provide them with all the
value
they can expect from a third party administrator. HMOs seem not to have
been able to parlay prepayment and risk pooling to any particular price
advantage, so self-funding grows in appeal and PPOs can deliver a
turnkey
provider network. Selectivity in provider networks has not yielded
bankable
gains, so a broad network with limited management to respond to
consumer
preferences for choice can suffice. Benefit designs are unregulated for
self-funded employers and PPOs fall largely below regulatory radar, so
benefit buy-down is facilitated as employers try to align what they
offer
with what they can afford. This is far more difficult with tightly
regulated
HMO designs. The simple coinsurance arrangements found in PPOs are
well-suited
to sensitize employees to the relative cost of care and alert them to
the
value of using contracted providers. In addition, cost sharing
provisions
in the PPO in general can be easily raised to offload an increasing
portion
of rising costs directly to consumers (6). Who Will Pay? The diminished
impact of managed care and the conversion to products with lower
aspirations
to achieve cost control raise new questions about how to finance the
U.S.
health care system to maintain it and its participants in the style to
which they have become accustomed. Many proponents of increased cost
participation
for consumers believe that the only recourse available is to seek
greater
contribution from consumers whose insatiable appetite for care has
grown
in direct proportion to the expansion of 7
--------------------------------------------------------------------------------
Page 8
benefit coverage that accompanied the growth of the HMO in the 1990s.
Some suggest the ability to finance expanded coverage came through the
discounts extracted from providers, the very discounts that now are no
longer attainable or sustainable. Thus, the inevitable trade-off facing
consumers is to contribute more or surrender some of the benefit
expansion
they have acquired (7). The pharmaceutical benefits area is one in
which
this transition is already most apparent. Coverage expansion was
dramatic
in the 1990s with out-of-pocket payments for pharmaceuticals dropping
from
59 % of total payments to 32 % in 10 years (8). One consequence of this
shift was an extraordinary increase in pharmacy expenditures that
reached
20 % per year in 2000 (9). In response, purchasers and plans introduced
a series of cost sharing strategies that subjected consumers to
graduated
co-payments based on the availability of substitutes and the ability of
plans (or pharmacy benefits managers) to negotiate preferred prices
with
drug companies. Multi-tiered benefit designs became an industry
standard
virtually overnight and persuaded many that stimulating consumer cost
consciousness
could alter behavior and save money, at least for plans and purchasers.
More ambitious efforts to shift cost and promote consumer
responsibility
are embodied in the rise of so-called “consumer driven/directed health
products” (10). These new models combine components of 1) giving
employees
more control over benefit dollars and designs; 2) limiting employer
responsibility
and exposure; and 3) promoting price competition among providers to
instill
stronger market forces into the purchase and consumption of health
benefits.
The fact that some of the major purveyors of these 8
--------------------------------------------------------------------------------
Page 9
products have come from outside of the managed care and health
insurance
industries implies that at least some purchasers are looking for
unconventional
solutions. Furthermore, the fact that many conventional insurers are
now
adding these options to their product portfolios may be indicative of
their
growing respectability and potential long term appeal (11). In many
respects,
the emergence of consumer-directed products confirms a loss of faith
that
managed care can recover the luster it has lost as a cost containment
strategy.
Whether the new genre of products can do better is far from certain,
and
low current take-up rates defy accurately gauging what their long-term
impact will be. They almost certainly will attract healthy individuals
willing to cash out a portion of their current premiums to a medical
spending
or reimbursement account and settle for a high deductible policy. How
much
discretionary care will be forgone or how much price-based shopping
holders
of such accounts will engage in can only be speculated about at this
time.
The degree to which needed care may be delayed or undelivered, with
resulting
higher costs incurred later, is equally uncertain. Where the model
seems
to be more seriously suspect is on the issues of equity and
practicality.
Insulating consumers from most health care costs through comprehensive
coverage policies has the effect of neutralizing the impact of income
on
much of the consumption of health care. A model that seeks to provoke
increased
cost-conscious demand for care invariably will have differential
effects
across income groups, some of which may find they are trading off
health
benefits for other necessities of life. Such 9
--------------------------------------------------------------------------------
Page 10
tradeoffs can be softened and contained though design features like
subsidies, but they cannot fully counteract the adverse effects on
low-income
persons that are unavoidable in any kind of increased cost sharing. The
other point of particular vulnerability for these models lies in the
dearth
of meaningful information to support cost and outcome comparison and
the
continued reluctance of care providers to share credible information in
these areas. Proponents suggest that only when consumers are positioned
to make price and value comparisons will meaningful data to support
these
decisions become available. Likewise, providers will then know that
they
have to be more forthcoming and accommodating because failure to do so
will have adverse consequences for them. Even if one is prepared to
accept
this scenario as plausible, the research to date on consumer use of
information
like plan and provider report cards is hardly reason for optimism. It
is
easy to be skeptical, if not dismissive, about the promise of
consumer-directed
health products. But it is sobering to recognize that with the steep
rise
in consumer cost-sharing and concerted efforts by employers to promote
acceptance of less-rich benefit designs, a de facto “inching toward
defined
contribution” is already afoot for many privately insured persons.
Ultimately,
consumers’ demands for more control and direction may follow when their
economic stake in their health care has been sharply increased.
10
--------------------------------------------------------------------------------
Page 11
Availability and take-up of these new products in the public sector
is far more problematic. In that sector, owing to the wonders of
cost-shifting,
communities have been able to sustain coverage for persons unable to
pay
for additional out of pocket costs. As a default policy option to
finance
uncompensated care, cost shifting has proven to be a durable strategy
particularly
in communities where private health care providers provide the bulk of
uncompensated or subsidized care. But cost shifting in the hospital
sector
has been in decline as private payers turned to managed care
organizations
to impose more control on payment levels to hospitals,and the
facilities
themselves reduced their operating costs to become more efficient and
maintain
their viability (Figure 3). Hospital Payments as a Percentage of Cost
by
Payer—1990-20006 0 .0 0 %7 0 .0 0 %8 0 .0 0 %9 0 .0 0 %1 0 0 .0 0 %1 1
0 .0 0 %1 2 0 .0 0 %1 3 0 .0 0 %1 4 0 .0 0 %1 9 9 01 9 9 11 9 9 21 9 9
31 9 9 41 9 9 51 9 9 61 9 9 71 9 9 81 9 9 92 0 0 0P riv a te P a y e r
sM e d ic a reM e d ic a id126.8089.2079.70112.50100.2096.10Source:
Medicare
Payment Advisory Commission, Report to Congress, March 2002Figure
311
--------------------------------------------------------------------------------
Page 12
It is this improved efficiency that has led to payment rates from
Medicare
and Medicaid that more closely approach costs. The net effect of this
pattern
is that hospitals have fewer resources available to subsidize
uncompensated
care, highlighting the need to ensure that the maximum number of
uninsured
are transitioned from uncovered status to some category of coverage.
Being
unlikely candidates for participation in consumer-directed health
products,
most of these individuals will have to rely on traditional managed care
models, like HMOs, to gain access to necessary coverage. Where Will the
Money Come From? The final challenge of note that is threatening
managed
care, particularly in Medicaid, is the historic decline in revenues
experienced
by states in the current recession and the post-9/11 environment
(Figure
4). The plunging tax collections of the past 2 plus years have fallen
like
a dagger into the hearts of states that were deeply in the midst of
equally
historic increases in coverage associated with State Children Health
Insurance
Program (SCHIP) and various state-initiated expansions of the mid and
late
1990s. Insofar as most states have relied on managed care arrangements
and prepaid models in particular because of their cost predictability
as
the financing and delivery platforms for these expansion, lessening of
support for these models could put eligibility expansions in
jeopardy—and
they have (12). 12
--------------------------------------------------------------------------------
Page 13
Change in Quarterly State Tax Revenue, FY
1998-200271078556710117453-3-3-8-10-5051015Q1-98
Q2 -98 Q3- 98 Q4-9 8 Q1 -99 Q2- 99 Q3- 99 Q4-9 9 Q1 -00 Q2- 00 Q3- 00
Q4-00
Q1 -01 Q2- 01 Q3-0 1 Q4 -01 Q1- 0219981999 2000 2001 2Percentage
ChangeSource:
NW. Jenny , State Revenue Report, no 49 (Rockefeller Institute of
Government),
September , 2002Figure 4Prepayment particularly has come under siege as
states scramble to find revenues sufficient to meet the expenses of
participating
HMOs or, at a minimum, avoid having to reduce or rollback capitation
rates.
Contrary to trends in the commercial sector, buying-down the basic
benefit
package is virtually impossible in Medicaid (and infeasible in many
SCHIP
programs). Nor can Medicaid-participating plans turn to substantial
cost
sharing with beneficiaries—most of whom are, by definition, financially
distressed to begin with. States can, and may yet, turn or return, in
effect,
to self-funding as their private sector counterparts are doing, by
converting
full risk arrangements to partial risk or even purely administrative
services
only (ASO) arrangements with existing health plans. What the
consequences
of such shifts may be for care and cost management are unclear at this
time, but absent the possibility of benefit reductions or increased
cost
13
--------------------------------------------------------------------------------
Page 14
sharing found in private ASO arrangements, it is difficult to be
sanguine
about the implications of such a conversion. The “x-factor” in terms of
state response to the current fiscal crisis is what relief will be
forthcoming
from the federal coffers. While persistently refusing to consider
increasing
the state matching rate for Medicaid as many governors requested, the
Administration
offered the states increased flexibility to trim benefits for some
beneficiaries
to get some limited financial breathing room. Convinced that this
response
was hardly commensurate with the magnitude of the crisis, the states
took
their case to Congress and ultimately prevailed on them to obtain $10
billion
in assistance for Medicaid (ingeniously funded through a convoluted
process
of getting an offset again the President’s tax credit proposal). How
well
this supplement softens the blow that prepaid health plans might have
incurred
remains to be seen. Crisis and the HMO Response The series of
challenges
to the traditional HMO model and the bleak budget picture of state
governments
raise the basic question: Can Medicaid agencies continue to depend on
HMOs
to meet their needs and desires for care management and cost control
for
their beneficiaries? There is a well-earned crisis in the managed care
world among care-givers, purchasers, and consumers and it is worth
reassessing
if the model is still viable. Managed care plan participation has waned
in Medicaid in recent years but few states have found it impossible to
sustain prepaid programs thus far (13). In large measure this
14
--------------------------------------------------------------------------------
Page 15
is because they have turn to and been well-served by a cadre of
Medicaid-focused
plans that are growing in size and sophistication and that have more
than
offset the shrinking participation among multi-product, commercially
focused
managed care firms. Not only are these plans succeeding individually;
but,
as a group, they are keeping alive the flickering flame of the prepaid
health plan movement. It is no accident that this is occurring in
Medicaid,
because it is in this program where limited resources argue most
strongly
for a model of financing and delivery that champions rational resource
allocation. While many features of the HMO have been modified in the
the
quarter century since Luft defined its essential elements, the core
components
remain in most Medicaid-focused HMOs largely intact (14). It is in the
commercial world where the retreat from the traditional HMO has been
most
notable, and rather than representing a victory, as HMO-critics would
contend,
this has been a series of losses. We have witnessed a declining
reliance
on risk pooling and the use of community rating for rate setting.
Comprehensive
benefits have proven difficult to maintain and reliance on full
prepayment
has been eroded. With the loss of these features, the basic commitment
to prevention in health maintenance organization has become difficult
to
sustain. The capacity of HMOs to promote care coordination and
accountability
has been undermined, as plans have dropped restricted networks, primary
care case management, and pre-service authorization and concurrent
review.
Taken together, weakening of the basic foundation has meant the
surviving
models of managed care are ill-designed to meet the 15
--------------------------------------------------------------------------------
Page 16
needs of those purchasers who fully acknowledge that they face real
financial constraints, such as state Medicaid agencies. Risk Pooling
and
Prepayment. Among the most troubling aspects of the current shift
toward
increased use of cost sharing is that it places the greatest burden on
the highest users of care. In principle, increasing a sense of
responsibility
for care consumption has many laudable features, but given that the
burden
of illness is not randomly distributed and that ill health is
positively
correlated with diminished income, linking individual contributions to
expected service use has real limits. It also is a model that is
fraught
with the danger of undermining the principle of community-based
risk-pooling,
which is at the heart of health insurance. Consumer driven health
products
represent a direct assault on this idea, as they almost certainly will
lure the young and healthy from comprehensive insurance pools. This
scenario
would leave the less healthy in pools that could soon be caught up in
death
spirals as premiums rise sharply, leaving only the sickest willing to
buy
ever-more-costly insurance. From the standpoint of provision of care, a
flight from prepayment, triggered in part by the backlash against
capitation,
has meant a significant setback for promoting innovation in care
delivery.
Prepayment represents a financial constraint that should produce an
imperative
to find more efficient ways to deliver services to achieve equal or
superior
outcomes. Taken a step further, capitation payment per se can be viewed
as a liberatingdevice that allows for the capitation holder to find
creative
means to render care that can be patient/member-centered. This upside
feature
of capitation has been badly overlooked in the backlash against the
under-service
threats associated with capitated 16
--------------------------------------------------------------------------------
Page 17
compensation. But the liberation opportunities can be and are realized
by those organizations that are wisely structured and cleverly operated
to avail themselves of capitation’s virtues. Comprehensive Benefits and
Prevention. The unbundling of comprehensive benefit packages and the
potential
for purchasers and/or consumers to buy-down their own packages have
appeal
as short term measures to find some financial relief. The zest to
pursue
these options is a strong motivator for many purchasers to drop HMO
offerings
whose structures, benefits, and practices have been overly prescribed
by
legislators and regulators. But increased cost-sharing or
“skinnyed-down”
benefit packages may lower prices while driving up, or at least
displacing,
costs. The experience of Medicare’s omission of an outpatient
prescription
drug benefit is telling in this regard, as the burden on beneficiaries
in terms of costs and foregone care and medications is substantial.
Nearly
90 percent of all of beneficiaries obtain some form of what is called a
“supplemental” policy, but really is a “compensatory” policy to make
Medicare
coverage adequate. For low-income persons, such as those in Medicaid, a
benefit package without pharmaceutical coverage (ostensibly an optional
service in Medicaid) seems inconceivable and dangerously incomplete.
The
prevention imperative in health care is both as compelling and under
appreciated
as the overall public health function in America. It is the classic
situation
where there is an incongruity between the economic (and social mission)
case and the business case for investment (15). But the fault lies both
in our reliance on employer-sponsored, enrollment-based insurance
approach
and in the sickness-oriented health care system that 17
--------------------------------------------------------------------------------
Page 18
it has spawned and sponsored. A sickness system will always
(intentionally
or unintentionally) neglect prevention and its sponsors will find it
nearly
impossible to find ways to make investments in wellness that provide a
reasonable and reliable rate of return. The HMO, notwithstanding its
own
inherent limitations as a commercial enterprise, represents the best
model
yet developed to try create a reasonable business case for investing in
maintaining the wellness of an enrolled population. It is in the most
mature
and stable of HMOs, such as Kaiser Permanente with multi-generational
memberships,
that one can see most clearly the potential that cradle-to-grave
enrollment
has for altering the conventional logic and calculus of preventive
service
investment. Care Coordination and Accountability. While HMOs enjoyed
the
dubious reputation of drawing “favorable selection” (allegedly
intentionally)
for many years, there now seems a new recognition that they face
greater
risk of drawing “adverse selection” because of their capacity to
provide
comprehensive benefits and care coordination to persons with chronic
illness.
Increased attention to the needs of persons with chronic illness and
the
emergence of consensus models of organized care delivery for these
individuals
has underscored the need for more and better systems of care (16).
Enrolled
populations, engaged networks of providers, available auxiliary
personnel,
strong information infrastructure, and established regimens of patient
monitoring are far more likely to be found and functional in HMOs that
in the notoriously unmanaged fee-for-service world of PPO products.
HMOs
also offered a credible basis for quality improvement that far exceeds
anything that can be found in the fee-for-service world, particularly
in
the Medicaid program 18
--------------------------------------------------------------------------------
Page 19
where fee-for-service care has often been marginally delivered on an
episodic basis at less-than-desirable sites of care. Granted that
intermittent
eligibility in Medicaid presents huge problems in measuring and
monitoring
accountability, as Medicaid HEDIS indicators attest, but one only has
to
recall how very, very little quality monitoring in Medicaid pre-dated
the
arrival of managed care in Medicaid to appreciate what a great leap
forward
this has meant. While other models of managed care like primary care
case
management can deliver some of the elements of systematic quality
improvement,
none of these programs has in place the range of systems and processes
that a well-established, strongly-committed HMO can mount. Financial
Constraints.
The degree to which HMOs can provide Medicaid agencies with enhanced
accountability
illustrates the final point why the HMO, and in particular the
Medicaid-focused
HMO, has found an enduring place in Medicaid. The history of Medicaid
has
clearly been marked by a consuming concern with cost containment. But
this
concern has also been informed by recognizing that where resources are
limited, as they invariably are in Medicaid, program managers must
husband
these resources carefully and spend them wisely. HMO contracting
provides
a unique opportunity to achieve this by creating the opportunity to
carefully
measure both the numerator (outcomes) and denominator (price) to
compute
the value ratio for its spending. Not only can it do this at one point
in time, but, more importantly, it allows for promoting and rewarding
improvement
over time. Certainly not all Medicaid programs have done this, but for
those that have, the evidence has been strong that purchasing care
through
HMOs represents a sound and supportable use of precious resources.
19
--------------------------------------------------------------------------------
Page 20
The Medicaid Focused HMO—Enduring and Prevailing More than half of
all Medicaid beneficiaries enrolled in HMOs are enrolled in plans that
focus their efforts on serving Medicaid and SCHIP members (17). This
trend
is certain to continue, as most commercially-oriented firms
de-emphasize
the HMO product and resort to a variety of survival strategies that are
increasingly unresponsive to Medicaid’s needs. At the same time, the
withdrawal
of these firms has contributed to growth in the size of
Medicaid-focused
plans that has led to improved stability, and in many cases, enhanced
financial
performance. Moreover, Medicaid-focused plans are so committed to this
line of business that they have a vested interested in finding
accommodation
with state Medicaid agencies now in the throes of budgetary crisis.
Unlike
multi-product firms that left Medicare when a tight ceiling was clamped
on rate increases by the Balance Budget Act of 1997, these single
product
firms have no recourse but to make Medicaid managed care work, or go
out
of business. It will be interesting to track how participation of
Medicaid-focused
plans may vary by sponsorship as financial stress and strain grows. The
growth of investor owned plans like Amerigroup, Centene, and Molina and
repositioning by companies like United Healthcare Group and Wellpoint
to
expand Medicaid focused subsidiaries has bolstered the number of plans
with which many states can contract at a time when commercially-focused
plans have given up on the Medicaid niche market. Whether state budget
problems create problems for these firms or unsettle their investors
remains
to be seen. By the same token, provider-sponsored Medicaid-focused
plans
also bear close watching as provider owners may be forced to choose
between
continuing to sponsor prepaid 20
--------------------------------------------------------------------------------
Page 21
health plans or retrench to provider-only status and lobby for
preserving
favorable payment rates as hospitals or community health centers. There
is currently little evidence to suggest that sponsorship of
Medicaid-focused
plans is associated with important differences in financial and
non-financial
performance. What seems clear is that irrespective of sponsorship,
these
plans have succeeded in devising models for collaborative commitment
maximizing
care for persons in need, in spite of the limited resources available
to
them. The plans also seem to have had somewhat more success in
developing
collaborative relationships between health system developers and health
service providers than their commercially oriented counterparts. In
many
notable instances, they have succeeded in perpetrating and maintaining
a community health conspiracy. How well these plans will survive the
state
budget catastrophe that is sweeping the nation like a tsunami—a tidal
wide—threatening
everything in its path remains to be seen. There is little doubt at
this
point that despite the best instincts of state Medicaid officials,
rational
and sensible purchasing strategies that can get good value for
beneficiaries
are at substantial risk. In those cases where states do not know or
believe
that prepaid managed care is providing superior value, HMO programs are
clearly at risk of being relinquished or lost. What can plans do to
improve
their survival prospects at this point? A strong and visible commitment
to the principles of prepaid health plans will be important. So too
21
--------------------------------------------------------------------------------
Page 22
will be the financial wherewithal to endure a period where rates do
not keep pace with medical expenses and to still maintain essential
elements
of a managed care enterprise. One of these elements will be retention
of
a provider network whose resilience will be sorely tested when plans
must
explain to providers why payments to them will not keep up with their
expenses
during this difficult period. Plans will also require reasonable
accommodations
from state Medicaid agencies to relax contractual demands or reduce the
scope of risk if payment adjustments cannot be made to meet expenses in
the short term. This will be a clear test of the degree to which
“partnership
pays” if both parties remain committed to preservation of a proven
managed
care program (18). It is here where evidence that plans have made a
difference
in the lives of their members will be most crucial and could hold the
key
to program and plan survival. Conclusion This time of crisis for
Medicaid
managed care also serves to remind us both why Medicaid turned to
managed
care in the first place and why this relationship has been so strong
and
lasting. When and where we understand that health care resources are
not
unlimited and must be expended with deliberateness and discretion, we
will
find that the HMO model can and will meet our needs. It is for that
reason
that we can believe with some confidence that prepaid health plans in
Medicaid
will not only endure but also prevail. 22
--------------------------------------------------------------------------------
Page 23
23Sources 1. T. Mayer and G. Mayer, “HMOs: Origins and Developments,”
New England Journal of Medicine, 312(9): 390-394, 1985. 2. D. Draper et
al. “The Changing Face of Managed Care.” Health Affairs 21(1) : 11-23
(Jan/Feb
2002) 3. J. Gabel, et al. Employer Health Benefits. 2002 Annual Survey.
Menlo Park, CA: The Henry J. Kaiser Family Foundation and the Health
Research
and Education Trust, 2002. 4. C. Lesser and P. Ginsburg, Health Care
Cost
and Access: Problems Intensify, Issue Brief No. 63. Washington, DC:
Center
for Studying Health System Change, May 2003. 5. G. May et al, “An Empty
Toolbox? Changes in Health Plans’ Approaches for Managing Costs and
Care,”
Health Services Research, 31(1, Part II): 375-394 (February 2003). 6.
Lesser
and Ginsburg, Health Care Cost and Access. . . 7. L. Benko, “Loosening
Their Grip: As HMOs Popularity Continues to Erode, More Plans Turn to
Less
Restrictive Products. But With Costs Rising, What’s Next?” Modern
Healthcare
32, no 15: 30-34 (2002). 8. Kaiser Family Foundation. Prescription Drug
Trends Fact Sheet,
http://www.kff.org/content/2003/305702/3057_02_033103.pdf
(March 2003). 9. Mays, G., R. Hurley, and J. Grossman. “Consumers Face
Higher Costs as Health Plans Seek to Control Drug Spending.” Issue
Brief
No. 45. Washington, DC: Center for Studying Health System Change,
November
2001. 10. K. Martin, Shifting Responsibilities: Models of Defined
Contribution,
AcademyHealth, http://hcfo.net/pdf/definedcontribution.pdf. (February
2002).
11. J. Gabel et al, “Consumer-Driven Health Plans: Are the More than
Talk
Now,”
http://www.healthaffairs.org/WebExclusives/Gabel_Web_Excl_112002.htm(November
2002). 12. R. Hurley and S. Somers. “Medicaid and Managed Care: A
Lasting
Relationship?” Health Affairs 22(1):77-88 (Jan/Feb 2003). 13. S.
Felt-Lisk
et al, Trends in Health Plans Serving Medicaid–2000 Data Update.
Washington:
Kaiser Commission on Medicaid and the Uninsured (November 2001). T.
Coughlin
et al, “Commercial Health Plan Participation in Medicaid Managed Care:
An Examination of Six Markets.” Inquiry. 38(1):22-34 (2001). 14. H.
Luft,
HMOs: Dimensions of Performance, New York: John Wiley, 1981. 15. S.
Leatherman
et al, “Making the Business Case for Quality,” Health Affairs,
22(2):17-39
(March/April 2003). 16. E. Wagner et al, “Improving Chronic Illness
Care:
Translating Evidence into Action,” Health Affairs, 20(6):64-78 (Nov/Dec
2001). 17. R. Hurley and D. Draper, “Medicaid Confronts a Changing
Managed
Care Marketplace,” Health Care Financing Review, 24(1): 11-25 (Fall
2002).
18. R. Hurley and M. McCue, Partnership Pays: Making Medicaid Managed
Care
Work in a Turbulent Environment. Princeton, NJ: Center for Health Care
Strategies (February 2000).